Wednesday, May 2, 2012

Murphy on country-by-country reporting

If you're following the corporate tax transparency movement, you'll have heard of Richard Murphy, who takes the credit for creating the concept of country-by-country reporting. He has a post today on his blog in which he recreates a recent speech explaining the origins and developments of the movement:

When, almost ten years ago I wrote the first ever version of country-by-country reporting in response to one of the first ever questions John Christensen asked of me I thought the entire audience for the idea would amount to just two people – John and Prof Prem Sikka, who had just introduced us. How wrong I was! It seems a good idea has a life all of its own.

...Country-by-country reporting is, and was always intended to be, a full blown and completely new view of the trading of a multinational corporation, ideally required by an International Financial Reporting Standard, but failing that by international regulation.

What that accounting standard would demand is a full consolidated profit and loss account for each and every jurisdiction in which a multinational company trades.

And when I say full I mean 'full', including sales, costs, an analysis of labour costs and head count and full tax notes – including a deferred tax analysis.

And in some ways I mean more than full when it comes to this profit and loss account – because country-by-country reporting would also require disclosure of all intra-group sales and purchases, all intra-group hedging and derivative trading and the disclosure of all intra-group financing activity too.

Let's be clear about why country-by-country reporting does this. It's based on a series of solid assumptions. The first is that multinational corporations might act globally but they do not float above the global economy. Their actions are all ultimately geographically located. Country-by-country reporting recognises that. It makes globalisation accountable locally.

Second country-by-country reporting recognises that it is impossible to say that existing accounts for multinational corporations can possibly give a true and fair view of business when up to 60% of world trade – the part that takes place on intra-group basis – is totally lost to view in existing financial statements. It is ludicrous that we don't account for that trade in a globalised world.

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